Channel Structure Strategy

Channel-Structure Strategy

Objectives What is the nature of marketing channels? How do channel firms organize to do the

work of the channel? What problems do companies face in

designing and managing their channels? What role does physical distribution play

in attracting and satisfying customers? What are the changes taking place among

channel institutions?

Marketing Channel Functions Physical distribution. Transporting

and storing goods. Financing. Acquiring and using funds

to cover the costs of the channel work. Risk taking. Assuming the risks of

carrying oi.it the channel work.

Channel Levels A layer of intermediaries that performs

some work in bringing the product and its ownership closer to the final buyer.

The number of intermediary levels indicates the length of a channel.

CHANNEL-STRUCTURE STRATEGY The channel-structure strategy refers to the

number of intermediaries that may be employed in moving goods from manufacturers to customers.

A company may undertake to distribute its goods to customers or retailers without involving any intermediary. This strategy constitutes the shortest channel and may be labelled a direct distribution strategy.

Alternatively, goods may pass through one or more intermediaries, such as wholesalers or agents. This is an indirect distribution strategy.

Channel-Design Decisions Analyzing Customers' Desired

Service Output Levels Lot size Waiting and delivery time Spatial convenience Product variety Service backup

Channel-Design Decisions Establishing Objectives and

Constraints product characteristics Marketers must adapt their channel

objectives to the larger environment Legal regulations and restrictions

Channel-Design Decisions Identifying and Evaluating Major Channel

Alternatives Types Of Intermediaries Number Of Intermediaries

Exclusive Distribution Selective Distribution Extensive Distribution

Terms and Responsibility of channel members Price policy Conditions of sale Distributors' territorial rights Mutual services and responsibilities

Channel-Design Decisions Evaluating the Major Alternatives

ECONOMIC CRITERIA CONTROL AND ADAPTIVE CRITERIA

Channel-Management Decisions

Selecting Channel Members

Training and Motivating

Channel Members

Evaluating Channel Members

Channel Behaviour distribution channel consists of firms

that have banded together and are dependent on each other to achieve a common goal

Each channel member plays a role in the channel and specializes in performing one or more functions

For example, Sony' role is to produce hi-fi equipment that consumers will like and to create demand through national and worldwide advertising. The role of the specialist shops, department stores and other independent outlets, that stock and sell Sony' products is to display these items in convenient locations, to answer buyers' questions, to close sales and to provide a good level of customer service. The channel will be most effective when each member is assigned the tasks it can do best.

Ideally, because the success of individual channel members depends on overall channel success, all channel firms should work together smoothly to secure healthy margins or profitable sales.

They should understand and accept their roles, co-ordinate their goals and activities and co-operate to attain overall channel goals.

By co-operating, they can more effectively sense, serve and satisfy the target market, thereby creating win-win situations which they can mutually benefit from.

channel conflict Although channel members are dependent on

one another, they often act alone in their own short-term best interests.

They often disagree on the roles that each should play - that is, on who should do what and for what rewards.

Such disagreements over goals and roles generate channel conflict.

Conflict can occur at two levels. Horizontal Channel Conflict Vertical Channel Conflict

Horizontal Channel Conflict Conflict among firms at the same level of the

channel. For instance, dealers may complain about other

dealers in the town that steal sales from them by being too aggressive in their pricing and advertising, or by selling outside their assigned territories.

Car dealers, consumer appliance outlets and/or industrial equipment dealers that do not have sole distribution rights for the manufacturer's brand often encounter such conflict

Vertical Channel Conflict refers to conflicts between different levels of

the same channel. For example, in the pharmaceutical industry,

concentration of the distribution systems in some countries results in enhanced negotiating power for channel intermediaries, particularly the big wholesalers. Drug companies have to work harder to manage their relationship with distributors and other vital channel partners and to minimize conflict

Causes of Channel Conflict Goal incompatibility. Unclear roles and rights. Differences in perception. Intermediaries' dependence on the

manufacturer.

Managing Channel Conflict adoption of superordinate goals exchange persons between two or more

channel levels encouraging joint membership in and

between trade associations. Co-optation is an effort by one organization

to win the support of the leaders of another organization by including them in advisory councils, boards of directors, and the like

diplomacy, mediation, or arbitration

Vertical Marketing Systems A conventional marketing channel

comprises an independent producer, wholesaler(s), and retailer(s).

Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the system as a whole.

No channel member has complete or substantial control over other members

Vertical Marketing Systems A vertical marketing system (VMS),

by contrast, comprises the producer. wholesaler(s), and retailer(s) acting as a unified system.

One channel member, the channel captain, owns the others or franchises them or has so much power that they all cooperate.

Vertical Marketing Systems Vertical marketing systems (VMSs) arose

as a result of strong channel members' attempts to control channel behavior and eliminate the conflict that results when independent members pursue their own objectives.

VMSs achieve economies through size, bargaining power, and elimination of duplicated services

Types of VMS A corporate VMS combines successive stages of

production and distribution under single ownership Administered VMS

An administered VMS coordinates successive stages of production and distribution through the size and power of one of the members.

Manufacturers of a dominant brand are able to secure strong trade cooperation and support from resellers.

CONTRACTUAL VMS A contractual VMS consists of independent firms at

different levels of production and distribution, integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.

Horizontal Marketing Systems Two or more unrelated companies put

together resources or programs to exploit an emerging marketing opportunity.

Each company lacks the capital, know-how, production, or marketing resources to venture alone, or it is afraid of the risk.

The companies might work with each other on a temporary or permanent basis or create a joint venture company.

E-Commerce Marketing Practices E-business describes the use of electronic means

and platforms to conduct a company's business. E-commerce means that the company or site

offers to transact or facilitate the selling of products and services online. E-purchasing means companies decide to purchase

goods, services, and information from various online suppliers.

E-marketing describes company efforts to inform buyers, communicate, promote, and sell its products and services over the Internet.

Pure-Click Companies those that have launched a Web site

without any previous existence as a firm There are several kinds of pure-click

companies: search engines, Internet service providers (ISPs) , commerce sites, transaction sites, content sites, and enabler sites. Commerce sites sell all types of products and services, notably books, music, toys, insurance, stocks, clothes, financial services, and so on.

brick-and-click existing companies that have added an

online site for information or e-commerce.